Canada’s primary stock index concluded the week in the red as North American markets faced downward pressure from rising oil costs and growing skepticism surrounding the artificial intelligence sector.
“The main setbacks for the markets, TSX and North America in general, came really in two forms,” said Allan Small, senior investment adviser at iA Private Wealth.
“One is this idea of a technology pullback … and this idea that perhaps companies are spending too much on AI and not getting the return on their investment for the capital that they are putting out, and that is a big fear.”
The S&P/TSX composite index dropped 185.27 points to reach 35,788.18.
In New York, the Dow Jones industrial average fell 652.82 points to 52,215.16. The S&P 500 index declined 39.75 points to 7,623.68, while the Nasdaq composite retreated 53.52 points to 25,955.34.
Small noted that another challenge for the tech industry is the reality that “AI can’t just go to the moon forever.”
“At some point, memory chips, the production of them would have to slow because the market would have enough memory chips.”
However, the recent decline in AI-related stock valuations might present a potential entry point for some investors.
“There are a lot of names that are a lot cheaper than they were just a little while ago, although I will say that for tech, the highs were probably back at the beginning of the summer,” Small said.
He explained that the second significant headwind for markets this week involved rising energy costs, driven by the conflict in the Middle East and concerns regarding a potential escalation.
“We’re seeing oil prices move higher on this idea … that after the U.S. <a he said.
The December crude oil contract rose US$3.80 to settle at US$103.27 per barrel.
Elevated energy prices are also a major factor in investor speculation that the Bank of Canada will increase its benchmark interest rate next week. As of Friday afternoon, financial markets were pricing in nearly a 78 per cent probability of a <a My view on that is I think it would be foolish for the Bank of Canada to hike interest rates. I think it would be foolish for the Bank of Canada to focus on inflation when we have an economy that is really not doing a heck of a lot," Small said, noting that overall economic growth has remained sluggish.
The U.S. Federal Reserve is also set to deliver an interest rate decision on Wednesday.
